President Reagan's Economic Policy: Reaganomics Flashcards
Pre-Existing Problems
Unemployement 6.2%
Inflation double figures
Federal debt $73.8 billion
Key Aims
Economic Style
Supply-side economics
Cut taxes, increased profits, increased production, increased profits, expansion repeate
REsponse
Omnibus Reconciliation Act + Economic Recovery Tax (1981)
Cut federal spending by $35bn, cut approx 300 fed programmes
Cut taxes to encourage growth- 2nd Economic Tax Recovery Act cut personal tax by 25%
Deregulate industry
Cutting Social Expenditure
Social Welfare Programmes
Cut spending on over 300 programmes, reduction of $963 bn between 1981-1987
Social spending fell by average 1.5% annually under Reagan
Cutting Social Expenditure
Federal Government
New federalism- reduction in fed gov power
Slashed spending on fed gov departments- Department of Housing and Urban Development budget cut 57% 1981-1987
Cutting Social Expenditure
Taxation
Tax cuts benefitted rich + tax rises hit less affluent hardest
Homelessness increased- 200,000 to 400,000 and average income of poor decreased by $1,300 a year
Cutting Social Expenditure
Analysis
Wanted to reduce inflation, reduce size of fed gov, felt extreme reliance on welfare,
Impact:
Reduced gov spending + debt
Increased unemployment in fed gov
Reduced benefits, so inc. poverty and homelessness
Government Budget and Defence Expenditure
Increased Defence Spending
‘Defence is not a budget album’
By 1983, fed defence spending 23.5% of GDP, fed employees (defence) rose from 2.9 million to 3.1 million (1981 to 1983)
Government Budget and Defence Expenditure
Increased General Spending
Fed spending increased $699.1bn to $859.3bn (1980 to 1987)
Cuts in social spending, but only 17% of federal budget
Budget deficit 5x that of predecessors- Congress passed Balanced Budget and Emergency Deficits Control Act (1985)
Government Budget and Defence Expenditure
Success
5% population, but 25% of goods by 1990
Post 1983, US longest period of economic growth in peace-time
1980 to 1988- Inflation fell 13.5% to 4.%, unemployment fell 7% to 5.2%, 16 million new jobs
Real GNP grew 11% between 1981-4
Government Budget and Defence Expenditure
Debt
Had criticised $1 trillion national debt as ‘mortgaging our future and our children’s future’
But it tripled to more than $2.6 trillion
Huge trade deficit, went from largest creditor nation to largest debtor nation
Government Budget and Defence Expenditure
Foreign Competition
Foreign competition- decline in manufacturing
Persuaded Japanese manufacturers to voluntarily limit exports to USA
Japanese manufacturing plants in America- gave jobs
Government Budget and Defence Expenditure
Analysis
Viewed defence as significant priority for US in Cold War
Impact:
Inc. employment in defence
Excessive spending, more borrowing, increased debt
US retained some economic strength
Taxtation
Tax Reductions
Individual and corporate tax cuts (Economic Recovery Act) stimulated investment and production- benfitted rich over poor
2nd Economic Recovery Tax Act- reduced personal income tax by 25%
Taxation
Tax Increases
Tax rises- ‘revenue enhancement’ - hit poorest hardest
1986- increased taxes on corporations and capital gains, lowered top rate of taxation (50% to 28%) and increased bottom rate of taxation (11% to 15%)
